// FEATURE // dividends and bonuses. With business owners generally opting for the tax efficient model of small salary topped up with annual dividends, mistakenly opting for a generic income protection product would leave the individual out of pocket should ill health lead to time off work.
Furthermore, executive income protection also understands the way small businesses are structured, with many business owners nominating a spouse as a shareholder. These policies reflect that model, supporting both spouses on one policy to support the full family income model.
Safeguarding business
In addition to leveraging opportunities to improve tax efficiency and safeguarding wealth, for small businesses, ensuring business continuity in the event of illness or death of a business partner is also a pressing concern. This does not, however, mean investing in key person insurance. A far more tax efficient approach is to invest in shareholder protection.
Again, the policy is a tax efficient company expense but, perhaps more critically, provides a clear, legally binding succession plan should a business partner decease. Typically, an individual’ s shares will pass directly to a spouse, for example, who may or may not have any business knowledge, understanding or interest, leading to an uncertain company future. Under a shareholder protection policy, the money required to buy the shares from the inheritor is provided by the insurance to the business. This allows the remaining business owners or partners to immediately purchase the shares and achieve a more certain future.
This is an important aspect of business protection and continuity. It demands consensus regarding company valuation – with updates as required should business fortunes change – but also provides clarity. Each business owner’ s spouse or inheritor knows and understands what has been agreed under the shareholder protection policy; and the business has the immediate funds required to retain ownership and safeguard future operations.
Conclusion
Alex Ogden, Director, Executive Life
As tax legislation becomes increasingly complex and reliefs more constrained, business owners need more than productbased advice. There are tangible opportunities to improve tax efficiency, strengthen succession planning and protect shareholder value but rather than treating these as standalone products, businesses need a holistic financial strategy.
An integrated plan that considers the specific needs of both the business and owners and encompasses life insurance, wealth management and business protection, will minimise unnecessary tax while supporting sustainable growth and future generations. �
Intelligent SME. tech
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